Fed Tapering Begins

By Robert Posillico | December 2, 2021

During the Federal Reserve's November meeting, chairman Jerome Powell announced that the Fed would begin long-awaited tapering. Tapering refers to the gradual end to the Fed's monetary stimulus policy, which entailed purchasing 120 billion dollars a month in treasuries and securities, adding over four billion dollars to the Fed's balance sheet that now sits over 8 trillion. In the outlined plan, we will see reductions of 15 billion dollars per month, 10 billion in Treasuries, and 5 billion in mortgage-backed securities. While Powell made it clear that nothing is set in stone, this timeline will have the tapering end in early summer of 2022. Powell also expressed that the Fed has no intention of raising rates yet. The Fed has a “goal to reach maximum employment” before “lift-off,” which may not happen until 2023.

This news comes as we have new data coming out regarding the inflationary outlook. The Consumer Price Index for November increased 0.9 percent as the all items index increased 6.2 percent before seasonal adjustment. Core CPI (excluding food and energy) was also higher than expected at 4.6 percent. The Fed preferred Personal Consumption Expenditure Index also showed alarmingly high values of 4.4 percent and core 3.6 percent. This is more than double the target rate of 2 percent. While the Fed has been pushing the notion that inflation is transitory and largely related to supply chain issues, many are looking at the influx of capital through the Fed’s asset purchasing policy as pouring gas on this inflationary fire. Tapering may be one of many actions taken to avoid serious stagflation issues as we come out of this pandemic.

Edited by Benjamin Sherry

Sources: CNBC, WSJ